How Nasdaq Works…
Trifonopoulos Christos
Dimakis Dimitris
Nasdaq offers
 formal
company listing requirements
 electronic surveillance of trading
 real-time dissemination of quotations
 trade reports
 order-routing and execution systems
 limit-order display
Structure of Nasdaq…
How Nasdaq operates
Stock Name
buy
ABCD
10 1/4
sell
10 3/8
EFGH
11 5/8
11 7/8
XYZ
9 3/8
10 1/8
SelectNet
ECNs
Internet
Investors
Advantages of NASD…
Depth of
market
The number of shares of a security that can be bought or
sold at the bid and ask prices near the market without
causing a dramatic change in price.
Liquidity
The liquidity of a stock is the ease with which the market
can absorb volume buying or selling, without dramatic
fluctuation in price.
Price efficiency
Better prices which are ensured by competition
Transparency
The degree to which trade and quotation information is
available to the public on a current basis
Spread
The difference between the bid price at which a Market
Maker will buy a security, and the ask price at which a
Market maker will sell a security.
Electronic
Any electronic system that widely disseminates to third
Communication parties orders entered by an exchange Market Maker or
Network (ECN) OTC Market Maker, and permits such orders to be
executed against in whole or in part.
What is a Market Maker?





A firm
It maintains a firm bid and offer price in a given
security
It stands ready to buy or sell at publicly-quoted
prices
The Nasdaq Stock Market is a decentralized
network of competitive Market Makers
10% of NASD firms are Market Makers
Market Maker’s Job…
 It
processes orders for its own
customers…
 and for other NASD broker / dealers
 It buys securities from issuers for
resale
Nasdaq’s electronic life
1976
NASD purchases Nasdaq from Bunker-Ramo.
1980
Harris terminal introduced. Actual inside bid and offer
displayed.
1987
Nasdaq Workstation introduced allowing any DOS-based
PC to serve as a terminal.
1990
SelectNet introduced
1994
Nasdaq Workstation II introduced.
Nasdaq’s electronic life timeline
Harris terminal
Workstation
NASD purchases Nasdaq
from Bunker-Ramo.
SelectNet
Workstation II
1976
1980
1987
1990
1997
2000
Some facts and figures
(1/3)
Some facts and figures
(2/3)
Some facts and figures
(3/3)
ECN Network Participants
Some ECNs

ECNs are run by
companies
 ECNs provide access
to Nasdaq’s central
network